New homeschool group wants to avoid paying taxes

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I’m heading up a small group of about 20 homeschooling families. We may grow a bit, but we are in a small town, so I can’t imagine we’d ever be over 40 families big.

I’ve also set up a website and Google group. This is just information and communication for any area homeschooler, not a co-op of families who attend anything. It has about 50 families and growing.

What do I need to be aware of to be sure that we don’t become the kind of organizations (either of these groups) that have to file or pay taxes. We do not collect dues. If there is a field trip with a fee, each family just pays it at that time.

Thank you!
Kaysha

 

Kayla,

It sounds as if both groups are a small gathering of like-minded people. You said you don’t even collect dues! Amazing!

If you ever do collect dues, then open a checking account in the group’s name, so the money doesn’t look like your own personal money. This might involve getting an Employer Identification Number (EIN) from the IRS to open a checking account.

So long as you organize and operate like a nonprofit (no profit motive and decisions made by a group of leaders not one person) and stay under $5,000 gross income per year, you will be tax exempt in the eyes of the IRS. The  IRS does request that all nonprofits , even very small ones, file an annual Form 990N. It’s only 8 questions.

This checklist will keep you on track:  A checklist for new homeschool organizations

Then read the following articles in order:

  1. What’s in a name?
  2. Choosing a leadership team
  3. Writing your mission statement
  4. Getting an EIN from the IRS
  5. Identifying who you are by writing bylaws
  6. Sample bylaws
  7. Budgeting basics

I hope that helps!
Carol Topp, CPA

Are homeschool groups supposed to file the IRS Form 990N?

IRS
I recently visited your HomeschoolCPA.com site and was a little confused by the chart comparison of a 501c3 and a 501c7. In my research with CPA’s in my area and with talking to the IRS, it appears that the filing requirements have changed. It appears that as of 2006, all organizations must file a 990N postcard including a 501c7. From talking to the IRS a 990N will not be accepted from any organization that has not filled out a 1024 or 1023. Let me know your thoughts on this. Thank you!
Nathalia B

 

Nathalia,

Yes, the IRS does want all nonprofit organizations to file a 990N, but many organizations do not have to file the Form 1023/1024 if they have gross annual revenues under $5,000 (for a 501c3) or are a 501c7 Social Club who can “self declare” tax exempt status without filing a Form 1024.

To further confuse things, the IRS will not have an organization in their system until they file a Form 1023/1024.

An organization that is exempt from filing the Form 1023/1024 (for the two reasons listed above) can call the IRS and be added to the IRS database so they can file the 990N.

You can call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990Ns. It typically takes 6 weeks to be added to the IRS database.

Lately, I have helped several homeschool organizations that did not file their 990Ns and are now applying for tax exempt status. They now have to file corporate income tax returns for the years they were not filing the Form 990Ns! It is more paperwork and holding up their tax exempt status.

I hope that helps clarify things a bit!

Carol Topp,CPA

Does the IRS Form 990N apply to my group?

This question was originally posted in April 2009, but the information is still pertinent today.
Hi Carol,
Thanks so much for all your help in getting our Christian Homeschool Network up and running.  Things are going well so far. My husband brought a card he saw at the post office and handed it to me thinking it might apply to our group. The same basic info is on this web site:
http://www.irs.gov/charities/article/0,,id=169250,00.html
It is about a new filing requirement for small tax exempt organizations.Does this apply to us? I was unsure if this was just for 501 C 3 organizations.
Thanks, Carol
Sharon W

Sharon,
The new IRS ePostcard (Form 990N) notification is for all 501(c) organizations. The IRS is trying to clean up its database by using this short electronic postcard. They hope to find any “dead” nonprofits that are no longer in operation. They are also looking for small nonprofits that have “grown up” to the $25,000 (now $50,000) gross revenues per year and should be filing a 990EZ or 990 Form annually.  The ePostcard is a way for small nonprofits to acknowledge that they are still under the $25,000 (now $50,000) annual revenue threshold for filing the 990.

I recommend that you consider 501(c)(3) status ASAP.  The IRS expects educational nonprofits to file for their 501(c)(3) tax exempt status with in 27 months of formation (incorporation as a nonprofit).  Your nonprofit incorporation date was May 27, 2008, so you have until August 2010 to apply.  Otherwise, the IRS requests an explanation of why tax exempt status was not filed earlier and tax exemption is granted to the date of filing, not back to the date of formation.  This could mean that a nonprofit might owe back income tax for the period that they were not tax exempt.

If your gross revenues stay under $5,000 a year, you are granted an exception from filing the paperwork for 501(c)(3) status. If gross revenues get to be over $5,000 a year, your group should file for 501(c)(3) tax exempt status or pay corporate income tax on any surplus (i.e. profit).

In a nutshell, a small nonprofit has four choices:
1. Stay under $5,000 gross revenues per year
2. File for 501(c)(3) tax exempt status
3. Pay corporate income tax on any annual surplus.
4. Find a church or another 501c nonprofit to take you on as one of their ministries.

I hope that helps,

Carol Topp, CPA


Update as of August 2010:

The IRS is now asking all nonprofit organizations to begin filing the Form 990N , even if they have not yet applied for tax exempt status. Here is what the IRS states on their website http://www.irs.gov/charities/article/0,,id=156389,00.html

Tax Law Compliance Before Exempt Status Is Recognized

An organization that claims tax-exempt status under section 501(a), but has not yet received an IRS letter recognizing exempt status, is generally required to file an annual exempt organization return.

The annual return is either Form 990, 990EZ or the new electronic postcard Form 990N.

The difficulty in filing the Form 990N if you have not yet received 501(c)(3) tax exempt status is that your organization is not in the IRS system. You’ll have to call the IRS and get entered into their system before you can file your 990N online.

Carol Topp, CPA

Does a nonprofit need to file any tax returns before they apply for tax exempt status?

I was advising a small homeschool organization about applying for tax exempt status and explained that they had 27 months after their date of formation to file an application with the IRS.

Hi Carol,

I just read this and was concerned that I would need to file something during the 27 months time frame.  Please explain if possible.
http://www.irs.gov/charities/article/0,,id=156389,00.html

Teri

Teri,

The link to the IRS website concerns IRS requirements before you apply for tax exempt status. The link above states this (in part)

Tax Law Compliance Before Exempt Status Is Recognized

An organization that claims tax-exempt status under section 501(a), but has not yet received an IRS letter recognizing exempt status, is generally required to file an annual exempt organization return.

This is a fairly new requirement from the IRS. I used to tell nonprofit organizations that if they had not yet applied for 501c3 status, they did not have to file the Form 990. It came to my attention only a week ago that the IRS wants Form 990 from all nonprofits.

Fortunately, the form your organization (and all small nonprofits with annual gross revenues of less than $50,000) would need to file is the 990N, an electronic postcard that asks about 5 questions: Name and address of organization, the principle officer’s name and check a box that your annual gross revenues are under $50,000. It is very short and would take less than 5 minutes once a year.

Here’s a blog post that answers your question. http://homeschoolcpa.com/does-new-irs-990n-apply/

I hope that helps.

Carol Topp, CPA

We’re not 501c3 and don’t want to be!

IRS 1040 Forms Post Office April 14, 20113
Creative Commons License photo credit: stevendepolo

Our support group has been in existence over 20 years… and we are  STILL  not a 501(c)(3) …. and don’t want to be!

It would take so much more work, money, etc. to be a 501(c)(3)!!

Many times it is hard for our members to understand this — they think any group who’s not set up as a ‘business’ to ‘make money’ has to be a 501(c)(3).  Our group does NOT take donations — membership fees cover our cost of doing business. And they are reasonable — $10 a year, to get our newsletter via email, $20 if you want it printed and mailed to you.  We put out a group directory each year, pay for some things like church rental for our Back to School meeting, copies of membership forms & information about homeschooling that we distribute, etc.

Karleen
Conroe, TX

Karleen,

I need to warn you in your some of your assumptions. I’m a CPA and work with homeschool organizations to organize properly and decrease their tax liabilities by obtaining tax exempt status with the IRS.

I answered a leader who asked, “Can’t we operate without IRS tax exemption?” in this blog post.

You wrote: “they think any group who’s not set up as a ‘business’ to ‘make money’ has to be a501(c)(3).” They are partially correct. If your organization makes a profit, it owes tax unless it is legally tax exempt.

If your group is a nonprofit (i.e. no profit motive) you have one of 4 legal choices:

1. Stay small and remain under the IRS threshold of $5,000 in annual gross revenues for filing for 501c3 status.The IRS allow small nonprofits to “self declare” their tax exempt status without filing an application. But even small nonprofits must file an annual report with the IRS, Form 990N.

2. Consider another tax exempt status such as 501(c)(7) Social Club if you are a support group. See my blog posts on that issue here. And, like #1, 501(c)(7) social clubs are still required to file an annual report Form 990/990EZ or 990N with the IRS.

3. File for tax exemption under 501(c)(3) as an educational organization. This just got easier with the new IRS Form 1023-EZ.

4. Or you can pay your taxes.  When paying taxes is the alternative, tax exempt status doesn’t look so bad, huh?

Just because you do not accept donations does not exempt you from the IRS and tax regulations.

The USA offers a wonderful opportunity for nonprofit groups to keep all of their surplus and avoid paying taxes on it. But it does mean filing one time a document (Form 1023 or 1024) with the IRS to become a tax exempt organization.

I hope that clears things up a bit.

 

Carol Topp, CPA
HomeschoolCPA.com